The powers of leverage and savings

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Sometimes, the most obvious seems the most ignored. Take for example the concept of savings, the most obvious yet the most boring investment proposition for many. However, independent of any investment plans, accumulation of savings is the foundation of all investment.

Was it the great physicist Albert Einstein who once said that the eight wonder of world is the power of compound interest? Again obviously, a long head start is needed for savings and its twin concept of compound interest to have a very significant impact on our retirement plans. With very low bank interest these days, savings should be placed in the context of preparations for future investments, especially as savings per se may not be enough to outpace the impact of inflation.

For those in their 20s to 30s, a consistent monthly savings, even though small, will greatly help in subsequent investment activities, especially in real estate. For professionals and those with regular employment, regular savings can be implemented as long we have the correct mindset of thinking in the long run, and paying ourselves first before we disburse our monthly paycheck to other recurring monthly expenses.

In fact, the concept of all educational and pension plans is just founded on savings plus interest plus investment income, except that instead of you controlling your savings and investment, we hire third parties to do the job for us. In the process, we do not control entirely our money placements much as bank time deposits. The need of control is very important especially in situations where other investment options come into play, just like in real estate.

And what is leverage? What is its relation to savings? Unlike savings, leverage is very exciting as you can control and acquire a bigger asset with smaller capital. Who was that philosopher who once said that give me a lever and i will move the earth? Yes, taking control of a property with smaller capital, even as low as 10% of the property's valuation!

Assuming you have generated savings of say, P50,000 to P200,000, the road is now ready for you to embark on your real estate investment. If you are employed, the savings you generated is big plus point if you intend to secure a housing loan with savings banks, or even financing for the acquisition of a house and lot under the Home Development Mutual Fund, Social Security System or the Government Service Insurance System.

Why housing loan? Unlike other forms of financing, housing loan is relatively easy to process with no showing of business track record, as mere membership with the HDMF, SSS or GSIS with corresponding contributions would be generally enough to secure an approval. This may hold true even with savings banks as your banking relationship or track record will hold great weight in securing a fast approval.

The next crucial step is careful research and preparation, mindful of the fact that you will have to get that best bargain in the real estate market. There is no need to rush things as you will have to consider many options, or at least ten options, as many experienced real estate practitioners are doing. The mechanics of this search we will discuss in a separate blog posting.

If your search is well done, there may be a possibility that you will not even shell a single centavo in your real estate acquisition, as you may even be given additional cash to renovate the property as the loanable amount will be greater than the agreed purchase price. Is this possible? Of course, this is doable, but again, we will treat this in a separate blog posting.

What is the target goal here? The target is to generate extra positive cash flow, or cash in excess of monthly amortizations, so that you will again continue to increase steadily your savings nest egg over a period of time, in preparation for your next real estate acquisition, which may happen in another year or two.

Definitely, there will be many what ifs questions. If you have many questions, that is a very positive sign, as that shows you are thinking. Hopefully, our next blog posts will cover your reservations.

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Ortigas embarks on ambitious 'Ayala of the North' project

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News circulated in real estate circles that property developer Ortigas & Co. has embarked on an aggressive P100-billion redevelopment program for its four flagship projects.

The first project, which recently broke ground, is the Circulo Verde master-planned residential community along Calle Industria in Bagumbayan, Quezon City.

The first phase of construction for the project, which has been allotted P3 billion, includes the construction of five residential towers on 2.7 hectares of the 12-hectare property.

The privately held property firm also recently completed a deal with the Rizal provincial government that saw a new provincial capitol built—at the company’s expense—in Antipolo City.

The transfer freed up the 10-hectare site of the former provincial capitol along Shaw Boulevard in Pasig City, which had originally belonged to Ortigas & Co. Under the original deal between the government and the firm, the property would be returned to the Ortigas family once it is vacated by the provincial government.

It is reported that Ortigas & Co. would also start next year the redevelopment of the 16-hectare Greenhills Commercial Center to transform it into a modern shopping complex.

Once completed, the P25-billion shopping complex will hold several mid- and high-rise structures, a larger “tiangge” area as well as three levels of underground parking facilities that can accommodate up to 10,000 vehicles.

The company would also develop a 1.6-hectare property in front of the Asian Development Bank compound in Ortigas Center, which is currently a vacant lot, where the company hopes to construct the tallest buildings in the country.

For this year, the company will start construction of the 23-story Ibiza Tower in Circulo Verde, which will offer one- to two-bedroom units, sized from 44 to 80 square meters per unit. Also underway is the construction of the 11-story Majorca Residences with one-, two-, and three-bedroom units, sized from 42 to 107 square meters. Both projects will be completed by the third quarter of 2012.

When to start your real estate investment

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Even if you fail to pass licensure examinations for real estate brokers, it is not the end of your real estate investment plans. In fact, real estate brokering may not be the ideal career for most businessmen and professionals who have full time work to do, and there is a world of difference between real estate brokering and real estate investment. Brokering is a good foundation for real estate investment, but it is not a prerequisite.

The threshold question is always when to start investing in real estate. The issue is complicated by stories of failed real estate ventures and bankruptcies which have fanned fears to all the uninitiated. The short answer to the above question is NOW, regardless of whether the real estate market is up or down as market directions offer many opportunities.

After settling the issue of WHEN, is the question of HOW. Many times, the question of HOW is complicated by wrong perceptions that real estate is reserved for those who have adequate capital and funds to start with. These wrong perceptions sometime prevent real estate investment as too often excessive reliance on comfort zones of capital adequacy actually is the reason of inaction or delayed action.

As we progress in this blog, we will discuss actual hands-on cases on real estate investment with benefit of around 15 years of real estate practice, as this blog will not pretend to discuss theoretical concepts.

When we say that NOW is the time to start investing in real estate, it should not be literally construed as ACTUAL purchase of real estate property. Firstly, NOW means psychological preparation including clearing of mindsets. Real estate, unlike the stock market, is an investment for the patient and the careful where property appreciation most often is the greatest ROI over a period of time. It is so low profile and boring, especially if you are dealing with small properties.

Secondly, investment in real estate should be in tandem with your long term retirement plans, as the longer you intend to retire, the greater is your ROI in real estate. If executed well, it far exceeds other types of investment, as it actually needs lesser amount of attention and supervision. Therefore, with retirement as one of your reasons in your real estate investment, NOW takes a more urgent role as the earlier you start, the better and greater will be your ROI when retirement time comes.

Finally, as we progress in this blog, we will appreciate that real estate actually complements and improves your chances of success in other types of businesses and investments. In fact, even if you are employed or a professional, real estate may be one of your best chance to secure a comfortable retirement for you and your family.

Pacquiao conquers Cotto!

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As he captures seven world boxing titles



Pacquiao captured the welterweight crown held by Miguel Cotto after the referee stop the fight before the end of the 12th round. Pacquiao, a native of General Santos City, Philippines, became the first man in boxing history to capture seven world boxing titles in different divisions. The fight was controlled by Pacquiao from the start as he completely mastered the hapless Cotto.

Seminar On Real Estate Investing

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Yes, now is the best time to invest in real estate. With motivated sellers, prices are reasonable, lenders are willing to lend and interest rate are low. With low interest income, savers are in search a better investment
alternative of which, real estate leasing is the answer. However, because of the broad, diverse and changing intricacies and techniques of real estate, there is an urgent need to first acquire better and new knowledge in real estate on the part of prospective real estate investors, lessors, dealers and developers to save them from the sad misfortunes of learning from their mistakes.

In this regards, Urban Institute will conduct a lecture on “Investing In Real Real Estate: Opportunities, Techniques and What are Needed to be Learned” which this time will be held on November 16, 1:30 to 6 p.m. at the Maximo Function Room, Max’s Restaurant Glorietta, G2 Park, Theater Drive, Ayala Center, Makati City.

The 4-hour lecture will cover the following topics: review of the different investment motivations; advantages of investing in real estate; pitfalls and traps in real estate investments; why real estate appreciates; pros and cons of investing in vacant land; different areas of opportunities, techniques and how to’s in real estate investment such as buy and sell; build and sell; property leasing; rehabilitation of foreclosed and distressed properties; master leasing; converting apartments to townhouses or condominiums; developing vacant/raw lands; and an overview of the need-to-learn knowledge before investing.

Also to be conducted on the succeeding days at the same time and venue is a series of important topics, which can be attended separately, as follows: November 18 – How to Maximize Income of Rental Properties; November 23 – How To’s of Investing in Condominium Leasing; November 25 – Legal Aspects of Sale, Mortgage and Lease with Documentations; December 2 – Joint Ventures and Syndications for Real Estate Projects; December 4 – Property Valuation: How to do it Yourself; December 7 – How To’s of Property Development with HLURB Rules; December 9 – Taxation of Real Estate Transactions.

For other details or advance registration, Urban Institute may be reached at 796-8019 or 570-0973 or CP# 0916-426-9174 or 0921-683-9431 or by email at info@urbanet.ph or urbanet.ph@gmail.com or visit www.urban-institute.blogspot.com.

How do brokers earn their commissions?

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How do real estate brokers earn their commissions?

All real estate brokers and salesmen, whether licensed or not, earn their basic income from commissions for closing deals and transactions. By facilitating the consummation of a sale, brokers and salesmen typically earn a standard fee of 5% of the total price, payable by either the seller or buyer depending on the stipulations indicated in the Authority To Sell and/or Buy, or any document of similar import.

As a rule, however, only licensed brokers and their accredited salesmen are entitled to the broker's commissions. If you are not a licensed broker, you should secure a notarized power of attorney for you to be entitled to a broker's commission, by way of an exception.

However, the 5% commission is only a standard rule, you can go lower or higher depending on the peculiarities of the transaction. In some cases, brokers stipulate for an overprice clause which may go up to 20-50% of the selling price, although this clause is discouraged for ethical and professional reasons.

For the more experienced brokers, there are other sources of commissions aside from a sale transaction. Facilitating the consummation of a lease contract is one source of commission which can range from 1-2 months of rent depending on the length of lease as well as terms of deposit required by the lessor.

In the last five years, almost all banks in the Philippines have offered various commission schemes to licensed brokers in order to move their inventory of foreclosed real properties. In fact, many experienced brokers have built their practice around selling and disposing of these bank acquired real properties.

The open secret of many real estate brokers is maintaining a regularly updated list and inventory of real properties for sale and rent in their respective localities. However, that is only the first part of the story. The more difficult part is how to market these available real properties to prospective buyers and how to protect the broker's efforts especially his commissions.

There is only way to protect your commissions - proper and well prepared documentation, like stipulation on non-circumvention giving the broker the stipulated commission in the event of future sale. Too many frustrations of brokers arise from the closing of a sale transaction where they initiated but the buyer, for some reasons, have deliberately delayed the purchase of the property for several months or even years.

Except for those brokers who are in-house marketers of large real estate projects of well established developers, a great majority are still on their own trying to earn their commissions. A well defined plan of action including a marketing strategy will spell the difference of the success of these brokers, where the men will be separated from the boys, so to speak.

What about if you fail to pass the real estate brokers' exams?

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Yesterday, we said that the BEST foundation of your success in real estate investment is to be a licensed real estate broker. That is obviously an ideal scenario, as we know that not all will become licensed real estate brokers. So what becomes of the many who will be unfortunate enough not to hurdle the licensure exams?

It is not the end though of your career as real estate investor. The most important part of your journey is actually not passing the brokers' exams but attending the review classes where you have the opportunity to familiarize yourself with many real estate terms and concepts. Of course, passing the exams should be the ideal target but if you will fail despite your best efforts, it will not be the end of your real estate plans.

As we progress in this blog, we address both concerns of licensed and "unlicensed" real estate practitioners, knowing for a fact that the latter group is the more dominant in numbers, and sometimes better performers than the "licensed" ones.

For the licensed brokers, they will have the distinct advantage of "legally" practicing their craft, and most often are given many privileges and benefits by established and entrenched real estate business outfits. Majority if not all licensed brokers in the Philippines are members of the Philippine Association of Realtors Boards, Inc. (PAREB), the Real Estate Brokers Association of the Philippines (REBAP) and even the Chambers of Real Estate Board (CREBA).

For the unlicensed brokers, many will be working as salesmen of licensed brokers or even will be engaged in various real estate transactions on their own, the so-called 'foot soldiers' as they are known popularly in real estate circles. Oftentimes, some of these unlicensed brokers, because of the rather weak regulatory rules by the Department of Trade and Industry, practically do the work that should be intended for licensed brokers giving the impression that being a licensed broker is no different from being an unlicensed one.

Unlike other professions well monitored and regulated by the Professional Regulatory Commission (PRC), the profession of real estate brokering in the Philippines does not yet enjoy that level of regulation and monitoring that any licensed broker will be proud of, for now.

At any rate, whether you are a licensed or unlicensed broker, this blog will hopefully give you some insights on how to be a successful real estate investor and practitioner.

What is the best way to start in the business of real estate?

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Whether unemployed, underemployed or employed, real estate investment is a must if you want to have reliable source of primary and secondary income. If you are in business, real estate is always needed if you need capital to expand. If you are a professional, real estate is an excellent source of secondary income. And if you are unemployed or underemployed, real estate may be your best way to earn a decent living.

But real estate investment needs adequate knowledge of many fundamental concepts and principles. For one, there are a lot of legal terminologies which a beginner has to familiarize. You also need to know of surveying concepts, working knowledge of mathematics and even statistics and zoning regulations, among others. Your success in real estate needs sufficient foundation, and admittedly it will not be a walk in the park.

What is then the best foundation to embark on your journey to real estate success? As a real estate investor and practitioner in the last 15 years, I can say with confidence that the best preparation is to be a licensed real estate broker. How to start it is simple. You only need to go to your nearest Department of Trade and Industry (DTI) office and secure an application form to take licensure examinations for real estate brokers.

Passing the exams for real estate brokers is not an easy task, though. Even for a lawyer like me who passed a tough exam like the Bar Exams, exams for real estate brokers need focus and concentration as many lawyers, doctors and accountants have failed to pass the brokers' exams! But that should not deter you nevertheless, as many also pass the exams on account of adequate preparation.

And what is the best preparation? You have to enroll in a review course for licensed brokers handled by professional organizations accredited by the DTI, like those by the Philippine Association of Realtors Boards (PAREB) and the Real Estate Brokers Association of the Philippines (REBAP).

Who is and why Use A REALTOR®?

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Why Use A REALTOR®?
(Courtesy of PAREB, Inc.-www.pareb.org.ph)

Not every real estate agent or broker is a REALTOR®. The trademark REALTOR®and the familiar block “R” logo are patented to the National Association of REALTORS® of the USA. Only members in good standing of NAR-USA and its foreign affiliates are authorized to use them.

While all REALTORS® are government-licensed brokers, majority of the non-REALTOR® real estate agents in the Philippines are not. Another major difference between them is that the REALTORS® have taken an oath to abide by the stringent, enforceable REALTOR® Code of Ethics with Standards of Practice that promote the fair, ethical and honest treatment of all parties in a transaction. Non-REALTORS® take no such oath and are not morally bound to protect their clients and co-brokers from fraud, misrepresentation and other unethical practices that proliferate in the industry.

For your peace of mind and as an extra precautionary measure, make sure to partner with a REALTOR®.

No one in the Philippines may use the trademark REALTOR® or the block "R" logo except for members in good standing of the PHILIPPINE ASSOCIATION OF REALTORS® BOARDS (PAREB). Unauthorized use is an infringement of and punishable under Republic Act No. 166. It also constitutes a ground for revocation of the real estate broker's license pursuant to the Department of Trade and Industry (DTI) Administrative Order 75-1.

REALTOR® is a service mark registered in the Commission of Patents of the United States of America under Document No. 515199 and in the Philippine Patent Office under Document No. 5385 as property of then the National Association of REALTORS® Boards, now known as the National Association of REALTORS® (NAR-USA).

PAREB is the sole affiliate of NAR-USA in the Philippines. NAR-USA has conferred upon PAREB the authority to use the term and trademark REALTOR® since 1960.

NAR-USA's recent victory in a legal challenge to the uniqueness of the REALTOR® as a trademark is a timely reminder that REALTOR® and REALTORS® are neither generic terms nor synonyms for a real estate practitioner, agent or broker.

The author of this blog is a REALTOR® and a member of the General Santos City Real Estate Board, Inc. (GENSANREB), an affiliate organization of the Philippine Real Estate Board, Inc. (PAREB), and a lecturer on various real estate topics.

Welcome to Philippine Realtor!

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With the global economic slowdown, real estate in the Philippines is an investment option for many Filipinos, especially for our overseas workers.

This blog is all about topics on real estate in the Philippines!